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• Lending growth moderated to 4.2% Quarter-on-Quarter (QoQ), while deposits grew by 2.3% QoQ 
• Operating income contracted by 1.2% QoQ, while cost-to-income ratio increased to 27.9%. However, lower credit impairment charges and recoveries supported earnings, driving a 2.7% QoQ increase in sector net income
• Asset quality remained resilient, with NPL ratio broadly stable at 2.3% 
• NIM declined marginally by 3bps QoQ to 2.34%, while RoE increased to 18.9% and ROA remained stable at 2.0%

Dubai – 21^st September 2026 – Leading global professional services firm Alvarez & Marsal (A&M) has released its latest edition of the United Arab Emirates (UAE) Banking Pulse, analysing the Q2 2026 performance of the country’s ten largest listed banks. The quarter was marked by continued balance sheet expansion, robust asset quality and solid capital buffers. Profitability of the banks remained resilient amid elevated funding and operating costs. The continued regional challenges during the quarter has heightened concerns over potential asset quality deterioration and increased credit provisioning in the second half of 2026.

Lending growth continued to outpace deposit mobilization. Net loans and advances (L&A) grew by 4.2% QoQ, while aggregate deposits grew by 2.3% QoQ. Aggregate operating income declined 1.2% QoQ to AED 43.9bn, primarily driven by a 6.0% QoQ contraction in non-interest income, which was partially offset by a 1.7% QoQ increase in net interest income.

Sector net interest margin (NIM) marginally declined to 2.34% in Q2 2026, as the 18bps QoQ increase in cost of funds (CoF) to 3.6% outpaced the 6bps QoQ increase in yield on credit to 9.6%. Despite the margin compression, banks’ profitability remained resilient, with return on equity (RoE) increasing to 18.9% and return on assets (RoA) remaining stable at 2.0%, supported by a 2.7% QoQ increase in aggregate net income.

Asset quality remained resilient, with the non-performing loans (NPL) remaining at historically low level at 2.3%, while coverage ratio decreased marginally to 108.8%. Cost of risk (CoR) improved to 0.35% in Q2 2026, primarily driven by lower provisions at the top five banks (FAB, ENBD, ADCB, DIB and MASQ), rather than a significant structural improvement in underlying asset quality.

The report analyzes the top ten UAE banks by asset size: First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank (MASQ), Abu Dhabi Islamic Bank (ADIB), Commercial Bank of Dubai (CBD), National Bank of Ras Al-Khaimah (RAK), Sharjah Islamic Bank (SIB), and National Bank of Fujairah (NBF).

Mr. Sam Gidoomal, Managing Director and Head of Middle East Financial Services, commented: “UAE banks delivered a mixed set of results during Q2 2026, characterized by continued balance sheet expansion, resilient asset quality and solid capital buffers. Profitability, however, showed a moderate increase amid elevated funding and operating costs. The backdrop of ongoing geopolitical tensions and related business disruption during the quarter has heightened concerns over potential asset quality deterioration and the potential for increased credit provisioning in the second half of 2026”.

Prevailing Trends Identified for Q2 2026

• Credit growth outpaced deposit mobilization. Net L&A increased by 4.2% QoQ, while deposits rose by 2.3% QoQ, led to increase in the LDR to 81.9% from 80.4% in the previous quarter.
• Operating income weakened. Operating income contracted by 1.2% QoQ, primarily driven by a 6.0% QoQ decline in non-interest income, which was partially offset by a 1.7% QoQ increase in net interest income.
• Cost efficiency deteriorated. The C/I ratio increased marginally to 27.9% from 27.3%
• NIM declined marginally; however, profitability remained resilient. NIM eased marginally by 3bps QoQ to 2.34%. However, RoE increased by 23bps QoQ to 18.9% and RoA remained stable at 2.0% QoQ.
• Asset quality metrics improved. NPL ratio remained at historically low level at 2.3%, while CoR improved by 22bps QoQ to 0.35%.
• Banks valuation remained appealing. As of Q2 2026, UAE banks trade at 7.9x P/E and 1.6x P/TBV. Despite de-rating being linked to geopolitical unrest, the sector remains attractively positioned.

Looking Ahead: Q3 2026

• Lending momentum will be an important indicator as corporates and consumers continue to assess investment and financing decisions amid sustained regional certainty. 
• Liquidity conditions will increasingly depend on banks’ ability to maintain resilient funding profiles and liquidity levels against potential deposit volatility and changing customer behaviour.
• Provisioning outlook is expected to remain focused on the pace of incremental credit impairment charges, together with effectiveness of the CBUAE’s support measures in preserving sector resilience.

Overview

Source: Financial statements, Investor presentations, Pillar III disclosures, A&M analysis

Note: ¹Under the applicable regulatory framework, Domestic Systemically Important Banks (D-SIBs), including FAB, ENBD, ADCB, DIB, and MASQ, report the LCR, while the remaining banks, including ADIB, CBD, RAK, SIB, and NBF, disclose the ELAR

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ENDS 

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